Debt Management Basics
$1 bill and a calculator
Top 10 causes of debt

6. Medical expenses. Gaps in coverage, lapsed policies and increasingly costly alternatives make this a popular category. Just about every doctor I know now takes credit cards. If you think it's for convenience, think again. The medical industry wants to get paid at the time service is rendered. They know that if they don't, the chances of their getting paid drops. This means more debt for you, less for them. To be fair, they are not in the lending business, but this only masks a bigger problem.

7. Saving too little or not at all. The simplest way to avoid unwanted debt is to prepare for unexpected expenditures by saving three to six months of living expenses. With a savings cushion in place, a job layoff, illness or divorce will not cause immediate financial strain and increase debt. You always hear, "Pay yourself first." Do it and it will grow and be there when you need it. No one has ever regretted having a savings cushion.

8. No money communication skills. It is important to communicate with your spouse or significant other and your children about finances. Keep the lines of communication open and discuss financial goals and spending styles. If you are married to a spender and you are a saver, you will want to map out a strategy for you both to get what you want. Know what credit accounts you each have and promise each other to be honest about what each other spends. Many people find out that their spouses have racked up thousands of dollars in credit card debt and they had no idea that the accounts even existed. This often leads to No. 2 above.

9. Banking on a windfall. Spending tomorrow's money today is very tempting. Especially if you believe that tomorrow will come no matter what. A planned job bonus may not be a sure thing. The inheritance that you believe will come your way may not. The lesson is don't spend the money until the check clears.

10. Financial illiteracy. Many people don't understand how money works and grows, how to save and invest for a rainy day, or even why they should balance their checkbook. The schools don't always teach it, and your parents may not have sat you down and explained it. It doesn't matter. You are responsible for your life and your money anyway. Financial mistakes are increasingly expensive and complicated to resolve. Get educated and get in control.

  • Make a monthly spending plan that includes savings.
  • Save three to six months' worth of living expenses for unexpected expenditures.
  • Don't bank on an expected windfall.



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